Every individual may enjoy getting a tax refund. What if you’re a business owner? Can your small business get a tax refund?
How Business Tax Refunds Work
To get a tax refund, a business must pay the Internal Revenue Service (IRS) more during the year than the end-of-year tax bill. It should be noted that business income may be only a part of the total taxable income for a small business owner. Therefore it is important to add all the sources of income, including self-employed tax paid. Getting a tax refund will depend on the legal business type.
What Businesses Can Get a Tax Refund?
Generally, only C-corporations are the only class of businesses that are eligible for a tax refund. Many small businesses are formed as entities that pass their income directly to their owners. Thus, the owners are taxed on their returns instead of the business’ tax return. These types of pass-through businesses include sole proprietorships, partnerships, S-corporations, and Limited Liability Companies (LLC).
However, regardless of the business legal entity, businesses could receive a refund of overpaid payroll taxes. They may also receive a refund of overpaid sales or excise taxes assessed by states or municipalities.
How to Maximize a Tax Refund
Use these tips to maximize a tax refund:
If a business owner has paid for items from a personal bank account or charge card – make sure those items are recorded on the company’s books.
Check for available tax credits.
Use the home office deduction.
Track appropriately deductible mileage
Provide a tax-deductible incentive for employees.
Offer 401(k) matching which can qualify as a business deduction.
Ways to Use a Tax Refund
If you get a tax refund, you should consider using it to pay off debt, reinvest in your business, or create an emergency fund.
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